New Mexico Economy: Recent Developments, Outlook & Opportunities

Presentation to the Office of Senator Martin Heinrich

Presented by Jeffrey Mitchell, Director, UNM-BBER

August 2016

Summary

o NM has underperformed the nation in recovery from Great Recession – still well below pre-Recession employment levels. Slow recovery has resulted in out-migration, smaller labor force.

o State’s weak recovery, slow job growth is not typical, raising troubling questions.

o Evidence of a widening disconnect between urban & rural economies.

o Economic impact (employment) of decline in oil prices is mostly localized and is likely reaching the bottom with job growth in 2017 likely.

o Fiscal impact (State Gov’t finances) is severe and will continue, underlining State’s dependence on oil & gas and lack of diversity in revenue streams.

o Medicaid expansion has brought large inflow of federal monies, increased coverage by >200 thousand, but economic impacts difficult to identify.

o Policy ideas: diversify state finances, especially gross receipts system; nurture home-grown businesses; improve access to credit; invest Permanent funds; Education, education, education.

New Mexico’s Post-Recession Economy

New Mexico and US Employment Growth, (1991-2016Q1)

Source: BBER FORUNM, IHS Global Insight

Why is New Mexico’s recovery so weak?

o Loss of federal money – growth of federal spending, especially in categories most beneficial to New Mexico.

o No lead sector – Oil & Gas has minimal impacts. No growth in historically leading sectors (e.g. construction; professional & technical services, including national labs; government).

o Post-recession slowdown in national migration patterns – weak housing markets, household focus on rebuilding savings.

o Change in global & national patterns of economic growth – toward higher skill industries & occupations (e.g. Professional & Business Services).

o Decline of local and regional banks and limited access to capital.

o Changing demographic patterns – cause or effect?

Federal Government Spending in New Mexico, by Category, FY 2014

Source: Pew Charitable Trusts, Federal Spending in the States, 2005 to 2014

Retirement

benefits

Non-

retirement

benefits

Grants ContractsSalaries &

wagesTotal

Total (millions) $8,034 $5,590 $5,449 $7,181 $2,998 $29,252

Rank 36 36 33 16 28 33

Per Capita $3,852 $2,680 $2,613 $3,443 $1,438 $14,026

Rank 21 28 6 4 6 6

% GDP 8.8% 6.1% 6.0% 7.9% 3.3% 32.1%

Rank 11 17 4 3 6 3

2005-2014

Increase (US) 63% 80% 35% 9% 24% 49%

NM Employment Growth by Industry, Pre- and Post-Recession

Source: US Bureau of Labor Statistics, QCEW

%/yr Rank Gain/Loss %/yr Rank 2015

Total Non-Farm 1.8% 7 (19,537) -0.3% 49 806,199

Private 1.8% 8 (11,979) -0.3% 47 626,033

Mining 2.3% 15 4,630 1.9% 13 36,931

Construction 2.8% 9 (13,931) -3.9% 47 43,425

Manufacturing -2.2% 23 (7,286) -3.3% 49 27,749

Trade, Transp, Utilities 1.0% 10 (5,719) -0.6% 47 137,442

Information -1.0% 9 (3,290) -3.2% 40 12,680

Financial Activities 0.6% 26 (1,346) -0.6% 27 32,004

Prof & Business Services 2.9% 5 (8,714) -1.2% 50 99,770

Educ. & Health Services 4.4% 6 19,478 2.5% 13 122,337

Leisure & Hospitality 1.4% 31 6,639 1.1% 32 93,264

Other Services 2.0% 5 (2,415) -1.6% 44 20,431

Total Government 1.6% 4 (7,557) -0.6% 36 180,166

Federal Government 0.5% 13 (1,549) -0.7% 40 29,147

State Government 1.6% 8 (2,834) -0.8% 41 48,443

Local Government 2.0% 8 (3,175) -0.4% 29 102,576

2001-2008 2009-2015

MSA Employment Growth 2009-2016 (Jan-June)

Avg % Count Avg % Rank Avg % Rank Avg % Rank

Total Nonfarm 1.3% 221 0.0% 197 0.5% 154 0.3% 184

Total Private 1.6% 221 0.1% 198 1.4% 101 0.5% 178

Manufacturing 0.1% 205 -2.3% 190 -3.9% 201 0.4% 96

Prof & Bus Svrs 2.5% 209 -1.0% 201 0.5% 168 -0.6% 197

Educ & Health Srvs 2.3% 206 2.5% 61 4.5% 5 2.0% 98

Leisure & Hospitality 2.6% 210 1.6% 135 1.5% 138 1.8% 119

Federal Government -0.2% 214 -0.8% 118 -2.1% 174 -1.4% 152

All MSA Albuquerque Las Cruces Santa Fe

Source: US Bureau of Labor Statistics, CES

Employment Growth by Geography, 2009-2016

Source: US Bureau of Labor Statistics, QCEW

Domestic Migration from New Mexico, by Educational Attainment, 2009-2013

Current Economic Situation

New Mexico Economic Current Situation

o The full impact of the oil price decline is here – but we may have hit the bottom.

o Each quarter from 2015Q1 to 2016Q1 was weaker than the previous, but preliminary numbers indicate improvement in 2016Q2. In 2016Q, mining was down 6,450 (-23.7%), but healthcare was up 6,600 (5.3%). Most of the rest of growth was in low-wage sectors (e.g. Hospitality).

o Impact of oil decline is greatest on public finances. State FY16 General Fund closed FY16 ~$223 mn in deficit, and current projections for FY17 are a deficit of $431 mn. Reserves down to $220 mn (2.1%). Governor has taken tax increases off the table.

o Patterns indicate broader than acknowledged dependence on Oil & Gas – O&G revenues down $292.4 mn (-30.8), but CIT down $113.8 mn (-49.9%), GRT down -$138.4 mn (-7.2%), all in Lea, Eddy and San Juan Counties.

New Mexico Economic Current Situation

o Operating drill rigs up from 13 in mid-March to 30 on August 5 – not a recovery but the right direction.

o With Civilian Labor force down by 10,600 (-1.1%), unemployment rate (SA) stable at 6.2% (US=4.9%).

o Personal income growth fell to just 2.0% in 2015Q4 (W&S disbursements 0.3%) with slight improvement to 2.9% in 2016Q1 (W&S disbursements 2.5%). Medicaid-related Transfer growth slowing.

o An interesting regional pattern to NM’s economy – ABQ & SF MSAs offsetting Non-Metro areas, and growth has occurred only when both were strong.

Job Creation by Sector, 2015

Source: US Bureau of Labor Statistics, QCEW

Public Finances

Change in General Fund Revenue Accruals (FY 2015 Vs. FY 2016)

Source: NM Legislative Finance Committee

Change in Gross Receipt Tax Collections by County (July 2015 through May 2016)

Source: NM Taxation & Revenue Department

-50% -40% -30% -20% -10% 0% 10% 20% 30%

Lea

Eddy

Unknown

San Juan

Sandoval

Cibola

Mckinley

Lincoln

Santa Fe

Chaves

Taos

Other 14 Counties

Bernalillo

Valencia

Curry

San Miguel

Dona Ana

Rio Arriba

Grant

Otero

Los Alamos

Rig Counts in New Mexico vs. WTI Price

Source: EIA, Baker Hughes

Personal Income and Medicaid impacts

Personal Income Growth, By Component, 2013 – 2016 (March)

Source: US Bureau of Economic Analysis

Growth of Medicaid Transfers, 2014-2016Q1

Source: US Bureau of Economic Analysis

Heath Care & Social Assistance Employment Growth by Subsector, 2013-2015

(1,000)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2013Q1

2013Q2

2013Q3

2013Q4

2014Q1

2014Q2

2014Q3

2014Q4

2015Q1

2015Q2

2015Q3

2015Q4

Nursing Facilities

Hospitals

Social Assistance

Ambulatory

Source: US Bureau of Labor Statistics, QCEW

Per Capita Personal Income Growth, by Component, 2016Q1

Per Capita Income

Per Capita Personal Income Growth (2015Q1-2016Q1)

United States

New Mexico

NM Rank

United States

New Mexico

NM Rank

Personal income (Seasonally adjusted) $48,707 $39,084 47 4.4% 2.9% 41

Earnings by place of work $35,172 $25,518 48 4.8% 2.1% 43

Less: contr. for govt social ins ($3,826) ($3,023) 48 4.4% 1.6% 44

Plus: Adjustment for residence ($11) ($46)

Equals: Net earnings by place of residence $31,358 $22,541 49 4.8% 2.2% 43

Plus: Dividends, interest, and rent $8,902 $7,140 39 3.5% 3.4% 29

Plus: Personal current transfer receipts $8,447 $9,404 10 3.9% 4.3% 11

Wages and salaries $25,016 $18,199 48 5.3% 2.5% 44

Supplements to wages and salaries $5,781 $4,580 43 3.8% 1.0% 45

Proprietors' income $4,375 $2,739 49 3.3% 0.9% 41

Farm proprietors' income $144 $334 11 -21.2% -11.1% 11

Nonfarm proprietors' income $4,232 $2,405 51 4.4% 2.8% 43

Population (thousands persons) 323,007 2,085 36 0.8% 0.0% 45

Source: US Bureau of Economic Analysis

Average Hourly Wages by Industry – 2009-2016 (Jan-June)

Jun 2016

2009

(Jan-June)

2016

(Jan-June)

Avg Annual

Pct Change Rank

Total Private $18.75 $20.48 1.3% 47

Construction $20.90 $20.91 0.0% 42

Trade, Transp, Utilities $17.36 $16.59 -0.7% 50

Prof & Business Services $22.75 $26.94 2.4% 7

Educ & Health Services $17.14 $20.56 2.6% 17

Hospitality $11.54 $13.31 2.1% 15

Source: US Bureau of Labor Statistics, CES

New Mexico Economic Outlook

New Mexico Economic Outlook: 2016-2022

o Economic impacts of oil collapse will lessen in second half of 2016, and reach the bottom by mid-2017 (though fiscal impacts will linger).

o Employment growth: 5,300 jobs (0.7%) in second half of 2016, and 9,500 jobs (1.2%) in 2017 and thereafter.

o Short term job growth is in Metro areas, esp Albuquerque, but slightly negative in non-metro areas. Stronger statewide mid and longer-term growth occur when non-Metro moves positive.

o Composition of new jobs: 46% (2017)/37% (2018-2022) in Education and Healthcare & social assistance; 39%/29% in low-wage service sectors; 9%/17% in mining, utilities, construction, manufacturing, transportation; 11%/9% in Financial and P&BS, -3%/5% in Government (tied to health)

o Income growth: 2.9% in 2016, rising to 3.8% in 2017, and 5.0% in 2019; wages growth to private sector workers key variable.

o Forecast is little changed since April.

New Mexico and US Employment Growth, History and Forecast (2006-2020)

Source: BBER FORUNM, IHS Global Insight

New Mexico and US Income Growth, History and Forecast (2006-2020)

Source: BBER FORUNM, IHS Global Insight

Employment Forecast by Industry, 2016

Source: BBER FORUNM

Employment Forecast by Industry, 2017-2020

Source: BBER FORUNM

New Mexico Income Forecast, Alternative Scenarios

0%

2%

4%

6%

8%

2015 2016 2017 2018 2019 2020 2021

Baseline Scenario Pessimistic Scenario Optimistic Scenario

Source: BBER FORUNM

Personal Income Growth Forecast, by Component, 2016-2020

Source: BBER FORUNM

Western Blue Chip - 2017

Source: US and NM forecasts from IHS Global Insight and BBER. Remaining forecasts are Western Blue Chip consensus forecasts.

MSA Employment Forecast

Source: BBER FORUNM

Change in Population & Housing Units, and Housing Density, 2001-2015

Source: US Census Bureau, BBER

Housing Surplus/Deficit (Percentage) by County, 2015 vs. 2008

Values indicate percentage increase (Red)/ decrease (Green) in the average number of persons per occupied housing unit between 2008 and 2015. Statewide average: increase of 1%

Source: US Census Bureau Population Estimates; BBER

Housing units required to return population per occupied housing unit to pre-recession levels

Values indicate number of housing units required to return persons/ occupied housing unit from 2015 to 2008 levels. (Red=current housing deficit; Green=current housing surplus). State Total: deficit of 18,964 units (9,137 units net of surpluses)

Source: US Census Bureau Population Estimates; BBER

Housing Units Permitted for Construction, by Region, History & Forecast

38 Source: BBER FORUNM

Other areas

Housing Units Permitted for Construction, by Type, History & Forecast

39 Source: BBER FORUNM

US & NM: Housing Starts & Permits

0.000

0.200

0.400

0.600

0.800

1.000

1.200

1.400

1.600

1.800

2.000

0.000

2.000

4.000

6.000

8.000

10.000

12.000

14.000

16.000

06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

NM Housing Permits (Total) US Housing Start (Total)

Thousands, NM Millions, USA

Source: BBER FORUNM, IHS Global Insight

New Mexico Economy: Recent Developments, Outlook & Opportunities

Presentation to Office of Senator Martin Heinrich Presented by Jeffrey Mitchell, Director, UNM-BBER

August 2016